LABRADOR IRON ORE ROYALTY CORPORATION - RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2022
TORONTO, May 5, 2022 /CNW/ - Labrador Iron Ore Royalty Corporation ("LIORC") (TSX: LIF) announced today its operation and cash flow results for the first quarter ended March 31, 2022.
Financial Performance
In the first quarter of 2022, LIORC's financial results were negatively impacted by lower sales of concentrate and lower average realized concentrate and pellet prices. Royalty revenue for the first quarter of 2022 amounted to $53.7 million compared to $65.2 million for the first quarter of 2021. Equity earnings from Iron Ore Company of Canada ("IOC") were $40.4 million in the first quarter of 2022 compared to $57.0 million in the first quarter of 2021. Net income per share for the first quarter of 2022 was $0.99 per share, which was a 27% decrease over the same period in 2021. The adjusted cash flow per share for the first quarter of 2022 was $0.47 per share, which was 46% lower than in the same period in 2021, as a result of lower royalty revenues and the decision by IOC to not pay a dividend in the first quarter of 2022. In the first quarter of 2021, LIORC received a dividend in the amount of $19.0 million from IOC.
Decreased demand for iron ore by steel producers, partially offset by lower supply, led to lower iron ore prices in the first quarter of 2022. According to the World Steel Association, global crude steel production in the first quarter of 2022 decreased 6% over the first quarter of 2021 and crude steel production in China, which accounts for over 70% of all seaborne iron ore demand, was 9% lower in the first quarter of 2022 compared to the same quarter of 2021. Steel production in China was lower partly as a result of the continuation of the restrictions imposed on Chinese steel production that were initiated in the second half of 2021. At the same time, some of the world's largest suppliers of seaborne iron ore reported lower production in the first quarter of 2022, compared to the first quarter of 2021. Iron ore production by Rio Tinto was lower by 6%, as ongoing mine depletion was not offset by mine replacement projects and COVID-19 constraints impacted labour supply and iron ore production by Vale was lower by 6%, due to heavy rains in January and March, along with licensing delays at its Northern System.
IOC sells concentrate for sale ("CFS") based on the Platts index for 65% Fe, CFR China ("65% Fe index"). In the first quarter of 2022, the 65% Fe index averaged US$170 per tonne, an 11% decrease over the average of US$191 per tonne in the first quarter of 2021. The monthly Atlantic Blast Furnace 65% Fe pellet premium index as quoted by Platts (the "pellet premium") averaged US$67 per tonne in the first quarter of 2022, up substantially from an average of US$43 in the same quarter of 2021, on strong demand for pellets from both blast furnace and direct reduction iron markets, and supply constraints from Brazil and the Commonwealth of Independent States. Overall, the average price realized by IOC for CFS and pellets, FOB Sept-Îles, net of selling costs was approximately C$219 per tonne in the first quarter of 2022, compared to approximately C$226 per tonne in the first quarter of 2021.
Iron Ore Company of Canada Operations
Operations
IOC concentrate production in the first quarter of 2022 of 4.4 million tonnes was approximately the same as the same period of 2021, and 8% lower than the fourth quarter of 2021. Concentrate production in the first quarter of 2022 was negatively affected by intermittent periods of a lack of feed at the concentrator due to the mine and ore delivery system issues. IOC saleable production (CFS plus pellets) of 4.1 million tonnes in the first quarter of 2022 was 3% higher than the same period in 2021. Pellet production of 2.5 million tonnes was 2% lower than the corresponding quarter in 2021, mainly due to issues with the flux hopper and conveyor belts in the pellet feed system, a lack of feed at certain times from the concentrator and the idling of machines to prioritize concentrate for sale in order to meet sales commitments. CFS production of 1.6 million tonnes was 10% higher than the same quarter last year due to the lower production of pellets.
Sales as Reported for the LIORC Royalty
Total iron ore sales tonnage by IOC (CFS plus pellets) of 3.6 million tonnes in the first quarter of 2022 was 13% lower than the total sales tonnage for the same period in 2021, and 19% lower than the fourth quarter of 2021, predominantly due to equipment failures (ship loader cable, conveyor drive pulley and belt tear), inventory availability, and manpower constraints due to COVID-19. Pellet sales tonnages were 1% lower than the same quarter last year and 16% lower than the fourth quarter of 2021. CFS sales tonnages were 31% lower than the same quarter last year and 25% lower than the fourth quarter of 2021.
Outlook
Rio Tinto's 2022 guidance for IOC's saleable production (CFS plus pellets) remains at 17.0 million to 18.7 million tonnes. This compares to 16.6 million tonnes of saleable production in 2021. As reported in the 2021 Annual Report, IOC has ambitious capital expenditure plans to continue renewing the asset infrastructure and to improve the production results at IOC. These initiatives will be of benefit to LIORC as both an equity holder and a royalty holder.
There are a number of issues affecting the outlook for the seaborne iron ore market. The current COVID-19 crisis in China is negatively impacting China's economic outlook as a result of the widespread lock-downs being imposed as part of China's zero COVID-19 strategy. There also remains significant uncertainty regarding the economic health of the property markets in China. In addition, China recently announced that as part of its efforts to improve the decarbonization of the steel industry, it will ensure that crude steel production in 2022 does not exceed 2021 levels. Finally, the war in Ukraine has resulted in the disruption of some traditional sources of iron ore supply.
It is unclear as to the longer-term effects that these events will have on the market. However, despite these uncertainties, seaborne iron ore prices remain attractive from a historical perspective. Since the end of the first quarter iron ore prices have strengthened. In April 2022, the average price of the 65% Fe index was US$175 per tonne, or 2% higher than the average of the 65% Fe index for the first quarter of 2022. The pellet premium for April was US$82 per tonne compared to the average of US$67 per tonne in the first quarter of 2022. To put these prices in a longer-term historical context, the average of the 65% Fe index and the pellet premium over the five years ending December 31, 2021 were $118 and $50, respectively. As a result, we remain positive about the outlook for IOC and LIORC remains well positioned to continue to benefit from the current iron ore pricing environment through royalty revenues and expected future dividends from IOC.
The LIORC cash balance at March 31, 2022 stood at $13.5 million before LIORC dividends payable on April 26, 2022 of $0.50 per share or $32.0 million. The net royalty from IOC was received by LIORC on the same date, maintaining the Corporation's strong cash balance.
Respectfully submitted on behalf of the Directors of the Corporation,
John F. Tuer
President and Chief Executive Officer
May 5, 2022
Management's Discussion and Analysis
The following discussion and analysis should be read in conjunction with the Management's Discussion and Analysis section of Labrador Iron Ore Royalty Corporation's ("LIORC" or the "Corporation") 2021 Annual Report, and the financial statements and notes contained therein and the March 31, 2022 interim condensed consolidated financial statements.
Overview of the Business
The Corporation's revenues are entirely dependent on the operations of IOC as its principal assets relate to the operations of IOC and its principal source of revenue is the 7% royalty it receives on all sales of iron ore products by IOC. In addition to the volume of iron ore sold, the Corporation's royalty revenue is affected by the price of iron ore and the Canadian – U.S. dollar exchange rate. The first quarter sales of IOC are traditionally adversely affected by the general winter operating conditions and are usually 15% – 20% of the annual volume, with the balance spread fairly evenly throughout the other three quarters. Because of the size of individual shipments, some quarters may be affected by the timing of the loading of ships that can be delayed from one quarter to the next.
Financial Highlights
Three Months Ended |
||||
March 31, |
||||
2022 |
2021 |
|||
(Unaudited) |
||||
($ in millions except per share information) |
||||
Revenue |
54.2 |
65.7 |
||
Equity earnings from IOC |
40.4 |
57.0 |
||
Net income |
63.2 |
86.6 |
||
Net income per share |
$ 0.99 |
$ 1.35 |
||
Dividend from IOC |
- |
19.0 |
||
Cash flow from operations |
4.1 |
42.7 |
||
Cash flow from operations per share(1) |
$ 0.06 |
$ 0.67 |
||
Adjusted cash flow(1) |
29.8 |
55.4 |
||
Adjusted cash flow per share(1) |
$ 0.47 |
$ 0.87 |
||
Dividends declared per share |
$ 0.50 |
$ 1.00 |
||
(1) This is a non-IFRS financial measure and does not have a standard meaning under IFRS. |
||||
Please refer to Standardized Cash Flow and Adjusted Cash Flow section in the MD&A. |
||||
The lower revenue, net income and equity earnings achieved in the first quarter of 2022 as compared to 2021 were mainly due to lower concentrate sales and lower iron ore prices, partly offset by higher pellet premiums. The first quarter of 2022 sales tonnages (CFS plus pellets) were lower by 13% predominantly due to equipment failures (ship loader cable, conveyor drive pulley and belt tear), inventory availability, and manpower constraints due to COVID-19. Pellet sales were 1% lower and CFS sales were 31% lower than the same quarter in 2021.
The lower sales tonnages and a decrease in the average realized sales price of pellets and CFS, resulted in royalty income of $53.7 million for the quarter as compared to $65.2 million for the same period in 2021. First quarter 2022 cash flow from operations was $4.1 million or $0.06 per share compared to $42.7 million or $0.67 per share for the same period in 2021. There was no IOC dividend received by LIORC in the first quarter of 2022 compared to $19.0 million or $0.30 per share IOC dividend received for the same period in 2021. Equity earnings from IOC amounted to $40.4 million or $0.63 per share in the first quarter of 2022 compared to $57.0 million or $0.89 per share for the same period in 2021.
Operating Highlights
Three Months Ended |
|||
March 31, |
|||
IOC Operations |
2022 |
2021 |
|
(in millions of tonnes) |
|||
Sales(1) |
|||
Pellets |
2.43 |
2.44 |
|
Concentrate for sale ("CFS")(2) |
1.16 |
1.68 |
|
Total(3) |
3.58 |
4.12 |
|
Production |
|||
Concentrate produced |
4.39 |
4.40 |
|
Saleable production |
|||
Pellets |
2.46 |
2.51 |
|
CFS |
1.64 |
1.48 |
|
Total(3) |
4.09 |
3.99 |
|
Average index prices per tonne (US$) |
|||
65% Fe index(4) |
$ 170 |
$ 191 |
|
62% Fe index(5) |
$ 142 |
$ 167 |
|
Pellet premium(6) |
$ 67 |
$ 43 |
|
(1) For calculating the royalty to LIORC. |
|||
(2) Excludes third party ore sales. |
|||
(3) Totals may not add up due to rounding. |
|||
(4) The Platts index for 65% Fe, CFR China. |
|||
(5) The Platts index for 62% Fe, CFR China. |
|||
(6) The Platts Atlantic Blast Furnace 65% Fe pellet premium index. |
|||
IOC sells CFS based on the 65% Fe index. In the first quarter of 2022, the 65% Fe index averaged US$170 per tonne, an 11% decrease over the average of US$191 per tonne in the first quarter of 2021. Iron ore prices decreased party as a result of lower steel production in China as restrictions imposed on Chinese steel production that were initiated in the second half of 2021 continued during the quarter. At the same time, the expected supply of seaborne iron ore by some of the large producers was lower than expected. The monthly pellet premium averaged US$67 per tonne in the first quarter of 2022, up substantially from an average of US$43 in the same quarter of 2021, which had been negatively impacted by a reduction in demand from European steel producers due to COVID-19.
The average price realized by IOC for CFS and pellets, FOB Sept-Îles, net of selling costs was approximately C$219 per tonne in the first quarter of 2022 compared to C$226 per tonne in the first quarter of 2021. The decrease in the average realized price FOB Sept-Îles in 2022 was a result of lower CFS prices, partially offset by higher pellet premiums.
Standardized Cash Flow and Adjusted Cash Flow
For the Corporation, standardized cash flow is the same as cash flow from operating activities as recorded in the Corporation's cash flow statements as the Corporation does not incur capital expenditures or have any restrictions on dividends. Standardized cash flow per share was $0.06 for the quarter (2021 - $0.67).
The Corporation also reports "Adjusted cash flow" which is defined as cash flow from operating activities after adjustments for changes in amounts receivable, accounts payable and income taxes recoverable and payable. It is not a recognized measure under International Financial Reporting Standards ("IFRS"). The Directors believe that adjusted cash flow is a useful analytical measure as it better reflects cash available for dividends to shareholders.
The following reconciles standardized cash flow from operating activities to adjusted cash flow.
3 Months Ended Mar. 31, 2022 |
3 Months Ended Mar. 31, 2021 |
||||
(in thousands except for per share information) |
|||||
Standardized cash flow from operating activities |
$4,140 |
$42,686 |
|||
Changes in amounts receivable, accounts payable and |
25,702 |
12,724 |
|||
Adjusted cash flow |
$29,842 |
$55,410 |
|||
Adjusted cash flow per share |
$0.47 |
$0.87 |
|||
Liquidity and Capital Resources
The Corporation had $13.5 million in cash as at March 31, 2022 (December 31, 2021 - $82.9 million) with total current assets of $70.3 million (December 31, 2021 - $132.6 million). The Corporation had working capital of $27.4 million as at March 31, 2021 (December 31, 2021 - $29.6 million). The Corporation's operating cash flow was $4.1 million and the dividend paid during the quarter was $73.6 million, resulting in cash balances decreasing by $69.5 million during the first quarter of 2022.
Cash balances consist of deposits in Canadian dollars with Canadian chartered banks. Amounts receivable primarily consist of royalty payments from IOC. Royalty payments are received in U.S. dollars and converted to Canadian dollars on receipt, usually 25 days after the quarter end. The Corporation does not normally attempt to hedge this short-term foreign currency exposure.
Operating cash flow of the Corporation is sourced entirely from IOC through the Corporation's 7% royalty, 10 cents commission per tonne and dividends from its 15.10% equity interest in IOC. The Corporation normally pays cash dividends from its net income to the maximum extent possible, subject to the maintenance of appropriate levels of working capital.
The Corporation has a $30 million revolving credit facility with a term ending September 18, 2024 with provision for annual one-year extensions. No amount is currently drawn under this facility (2021 – nil) leaving $30.0 million available to provide for any capital required by IOC or requirements of the Corporation.
John F. Tuer
President and Chief Executive Officer
Toronto, Ontario
May 5, 2022
Forward-Looking Statements
This report may contain "forward-looking" statements that involve risks, uncertainties and other factors that may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Words such as "may", "will", "expect", "believe", "plan", "intend", "should", "would", "anticipate" and other similar terminology are intended to identify forward-looking statements. These statements reflect current assumptions and expectations regarding future events and operating performance as of the date of this report. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly, including iron ore price and volume volatility; the performance of IOC; market conditions in the steel industry; fluctuations in the value of the Canadian and U.S. Dollar; mining risks that cause a disruption in operations and availability of insurance; disruption in IOC's operations caused by natural disasters, severe weather conditions and public health crises, including the COVID-19 outbreak; failure of information systems or damage from cyber security attacks; adverse changes in domestic and global economic and political conditions; changes in government regulation and taxation; national, provincial and international laws, regulations regarding climate change that further limit the emissions of greenhouse gases or increase the costs of operations for IOC or its customers; changes affecting IOC's customers; competition from other iron ore producers; renewal of mining licences and leases; relationships with indigenous groups; litigation; and uncertainty in the estimates of reserves and resources. A discussion of these factors is contained in LIORC's annual information form dated March 11, 2022 under the heading, "Risk Factors". Although the forward-looking statements contained in this report are based upon what management of LIORC believes are reasonable assumptions, LIORC cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this report and LIORC assumes no obligation, except as required by law, to update any forward-looking statements to reflect new events or circumstances. This report should be viewed in conjunction with LIORC's other publicly available filings, copies of which can be obtained electronically on SEDAR at www.sedar.com.
LABRADOR IRON ORE ROYALTY CORPORATION |
||||||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
||||||
As at |
||||||
March 31, |
December 31, |
|||||
(in thousands of Canadian dollars) |
2022 |
2021 |
||||
(Unaudited) |
||||||
Assets |
||||||
Current Assets |
||||||
Cash and short-term investments |
$ |
13,453 |
$ |
82,913 |
||
Amounts receivable |
52,635 |
49,681 |
||||
Income taxes recoverable |
4,187 |
- |
||||
Total Current Assets |
70,275 |
132,594 |
||||
Non-Current Assets |
||||||
Iron Ore Company of Canada ("IOC") |
||||||
royalty and commission interests |
234,036 |
235,341 |
||||
Investment in IOC |
461,755 |
421,376 |
||||
Total Non-Current Assets |
695,791 |
656,717 |
||||
Total Assets |
$ |
766,066 |
$ |
789,311 |
||
Liabilities and Shareholders' Equity |
||||||
Current Liabilities |
||||||
Accounts payable |
$ |
10,850 |
$ |
10,786 |
||
Dividend payable |
32,000 |
73,600 |
||||
Taxes payable |
- |
18,625 |
||||
Total Current Liabilities |
42,850 |
103,011 |
||||
Non-Current Liabilities |
||||||
Deferred income taxes |
127,910 |
122,240 |
||||
Total Liabilities |
170,760 |
225,251 |
||||
Shareholders' Equity |
||||||
Share capital |
317,708 |
317,708 |
||||
Retained earnings |
289,018 |
257,772 |
||||
Accumulated other comprehensive loss |
(11,420) |
(11,420) |
||||
595,306 |
564,060 |
|||||
Total Liabilities and Shareholders' Equity |
$ |
766,066 |
$ |
789,311 |
||
Approved by the Directors, |
||||||
John F. Tuer |
Patricia M. Volker |
|||||
Director |
Director |
|||||
LABRADOR IRON ORE ROYALTY CORPORATION |
||||||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
||||||
For the Three Months Ended |
||||||
March 31, |
||||||
(in thousands of Canadian dollars except for per share information) |
2022 |
2021 |
||||
(Unaudited) |
||||||
Revenue |
||||||
IOC royalties |
$ |
53,748 |
$ |
65,248 |
||
IOC commissions |
353 |
406 |
||||
Interest and other income |
63 |
65 |
||||
54,164 |
65,719 |
|||||
Expenses |
||||||
Newfoundland royalty taxes |
10,750 |
13,050 |
||||
Amortization of royalty and commission interests |
1,305 |
1,466 |
||||
Administrative expenses |
884 |
771 |
||||
12,939 |
15,287 |
|||||
Income before equity earnings and income taxes |
41,225 |
50,432 |
||||
Equity earnings in IOC |
40,379 |
56,977 |
||||
Income before income taxes |
81,604 |
107,409 |
||||
Provision for income taxes |
||||||
Current |
12,688 |
15,501 |
||||
Deferred |
5,670 |
5,260 |
||||
18,358 |
20,761 |
|||||
Net income for the period |
63,246 |
86,648 |
||||
Comprehensive income for the period |
$ |
63,246 |
$ |
86,648 |
||
Net income per share |
$ |
0.99 |
$ |
1.35 |
||
LABRADOR IRON ORE ROYALTY CORPORATION |
||||||||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
For the Three Months Ended |
||||||||
March 31, |
||||||||
(in thousands of Canadian dollars) |
2022 |
2021 |
||||||
(Unaudited) |
||||||||
Net inflow (outflow) of cash related |
||||||||
to the following activities |
||||||||
Operating |
||||||||
Net income for the period |
$ |
63,246 |
$ |
86,648 |
||||
Items not affecting cash: |
||||||||
Equity earnings in IOC |
(40,379) |
(56,977) |
||||||
Current income taxes |
12,688 |
15,501 |
||||||
Deferred income taxes |
5,670 |
5,260 |
||||||
Amortization of royalty and commission interests |
1,305 |
1,466 |
||||||
Common share dividend from IOC |
- |
19,013 |
||||||
Change in amounts receivable |
(2,954) |
(12,858) |
||||||
Change in accounts payable |
64 |
2,034 |
||||||
Income taxes paid |
(35,500) |
(17,401) |
||||||
Cash flow from operating activities |
4,140 |
42,686 |
||||||
Financing |
||||||||
Dividend paid to shareholders |
(73,600) |
(115,200) |
||||||
Cash flow used in financing activities |
(73,600) |
(115,200) |
||||||
Decrease in cash, during the period |
(69,460) |
(72,514) |
||||||
Cash, beginning of period |
82,913 |
106,091 |
||||||
Cash, end of period |
$ |
13,453 |
$ |
33,577 |
||||
LABRADOR IRON ORE ROYALTY CORPORATION |
|||||||||||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
|||||||||||
Accumulated |
|||||||||||
other |
|||||||||||
Share |
Retained |
comprehensive |
|||||||||
(in thousands of Canadian dollars) |
capital |
earnings |
loss |
Total |
|||||||
(Unaudited) |
|||||||||||
Balance as at December 31, 2020 |
$ |
317,708 |
$ |
262,000 |
$ |
(13,340) |
$ |
566,368 |
|||
Net income for the period |
- |
86,648 |
- |
86,648 |
|||||||
Dividend declared to shareholders |
- |
(64,000) |
- |
(64,000) |
|||||||
Balance as at March 31, 2021 |
$ |
317,708 |
$ |
284,648 |
$ |
(13,340) |
$ |
589,016 |
|||
Balance as at December 31, 2021 |
$ |
317,708 |
$ |
257,772 |
$ |
(11,420) |
$ |
564,060 |
|||
Net income for the period |
- |
63,246 |
- |
63,246 |
|||||||
Dividend declared to shareholders |
- |
(32,000) |
- |
(32,000) |
|||||||
Balance as at March 31, 2022 |
$ |
317,708 |
$ |
289,018 |
$ |
(11,420) |
$ |
595,306 |
|||
The complete consolidated financial statements for the first quarter ended March 31, 2022, including the notes thereto, are posted on sedar.com and labradorironore.com.
SOURCE Labrador Iron Ore Royalty Corporation
John F. Tuer, President & Chief Executive Officer, (416) 362-0066
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